M/S Matrika Infrastructure PVT. LTD. Through Mr. Sanjay Agrawal vs. Union Of INDIA

Held

The Court held that the audit proceedings for the pre-GST period were permissible under the GST regime. Citing judgments from the Calcutta High Court (in a similar writ petition where audit proceedings were not stayed) and the Gauhati High Court in Laxmi Narayan Sahu v/s Union of India, the Court found that Section 174(2)(e) of the CGST Act, 2017, acts as a saving clause. This clause allows investigations, inquiries, verifications (including scrutiny and audit), and other legal proceedings instituted or to be instituted under the Finance Act, 1994, to continue as if the Act had not been repealed or amended. The Court noted that the authorities were proposing to undertake an audit for a period when the Finance Act, 1994, was applicable and were entitled to do so. The Rajasthan High Court's view in Suresh Kumar Singhal v/s Union of India was also cited as supporting this position. Consequently, the Court found no case for interference, especially since a show-cause notice had already been issued. The petitioner was granted liberty to file a reply, and the Assessing Officer was directed to pass an appropriate order in accordance with the law, without being influenced by the Court's observations. The Court explicitly stated it had not observed anything on the merits of the case.

Facts

The petitioner, M/s Matrika Infrastructure Private Limited, a company registered for Service Tax since 2011, challenged a show-cause notice dated 01.01.2018 issued by the Assistant Commissioner (Audit), Central Tax, CGST, Indore. The notice was for an audit of accounts from the year following the last audit up to 2016-17. The petitioner submitted documents and objected to the audit, arguing that internal audits are not defined under the Finance Act, 1994, and the authorities lacked the power to demand documents. The petitioner also contended that with the introduction of GST on 01.07.2017, the powers under the Finance Act, 1994, were repealed, rendering the demand for documents void. A subsequent show-cause notice dated 25.04.2019 was also challenged. The respondents asserted their actions were in consonance with statutory provisions and circulars, and the show-cause notice was issued within the prescribed time limit under Section 73 of the Finance Act, 1994, for the period April 2014 onwards.

Key Issues

1. Whether the respondents have the authority to conduct an audit and demand documents from the petitioner under the Finance Act, 1994, after the introduction of the Central Goods and Services Tax Act, 2017 (GST)? (Question of law, turning on Section 173 and 174 of the CGST Act, 2017, and Section 72A of the Finance Act, 1994). Petitioner's arguments: The petitioner argued that the Finance Act, 1994, was repealed by Section 173 of the CGST Act, 2017, and Section 174(2) of the CGST Act, 2017, did not provide a saving clause for Rule 5A(2) of the Service Tax Rules, 1994. Therefore, fresh audit proceedings initiated by the respondents were bad in law. They also contended that Section 72A of the Finance Act, 1994, which provides for audit, cannot be equated with 'verified' under Section 94(2)(k), and the expanded power under the rules was beyond the rule-making authority. Circulars relied upon were also argued to lack statutory backing. Respondents' arguments: The respondents contended that their action was in consonance with statutory provisions and circulars, and the audit was conducted as per Circular No. 181/7/2014/ST. They argued that the period involved was from April 2014, and the show-cause notice was issued within the five-year period prescribed under Section 73 of the Finance Act, 1994, to protect revenue interest.